Euro zone 10-year yields hold near multi-week highs, stocks in focus

Germany's 10-year yield, the euro area's benchmark, was flat at 2.71% after hitting 2.718% early this week, its highest since October 7. And while yields have remained relatively high, ING analysts said the gap between Bund yields and asset swap rates indicated that the recent risk-off move has boosted demand for German government bonds.

Euro zone 10-year yields held near multi-week highs on Wednesday as investors eyed stock markets to see if a fresh selloff could trigger a rush into government bonds. Yields, which move inversely to prices, dropped in morning trading as European shares hit seven-week lows, but rebounded in the afternoon as stocks around the world followed Wall Street higher.

However, earnings from artificial intelligence chipmaker Nvidia, due after the U.S. stock market closes, could have an impact on Thursday. Germany's 10-year yield, the euro area's benchmark, was flat at 2.71% after hitting 2.718% early this week, its highest since October 7.

And while yields have remained relatively high, ING analysts said the gap between Bund yields and asset swap rates indicated that the recent risk-off move has boosted demand for German government bonds. "Over in Europe, the 10-year swap rate at 2.75% still looks relatively high in its range since Germany made its spending announcement," said Benjamin Schroeder, rate strategist at ING.

"However, we have seen Bunds trade gradually richer over the past days with 10-year yields now standing 5 bps below the swap rate," he said, adding such moves mirrored rising hedging demand in equity markets. The Bund asset swap spread was last at -4 basis points (bps), from zero on November 11. Meanwhile, euro area inflation figures released by Eurostat met analyst expectations.

The benchmark 10-year U.S. Treasury yield was steady at 4.12% ahead of Thursday, when Nvidia's results are due and long-delayed U.S. jobs data for September will be released. Markets are pricing around a 50% chance of a Fed rate cut next month, though that could change if the surprise in the payrolls data is big enough to overcome its staleness.

As for the European Central Bank, chances that it would ease interest rates remain low. Traders priced in about a 30% chance of a 25-basis-point move by September next year.

Germany's 2-year yield, more sensitive to expectations for the ECB policy rate outlook, was steady at 2.02%. It hit 2.051% early this week, the highest level since March 28. Italy's 10-year government bond yields were steady at 3.46%, after hitting 3.474% on Monday, their highest level since October 13.

The gap over safe-haven German Bunds - a key gauge of the extra return investors demand to hold Italian debt instead of German bonds – was at 75 bps, after hitting a fresh 15-year low at 70.68 bps. Citi warned in its morning note that the resilience of euro area government bond spreads "might be at risk" if risk-off sentiment in financial markets persists.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)